Hot CSC Stock Could Cool Down, Analyst Warns
While several tech companies issued profit warnings Wednesday, an analyst issued a bit of a warning of his own for one Southland stock.
El Segundo-based Computer Sciences Corp. shares fell 7% after Donaldson, Lufkin & Jenrette cut its rating on the third-largest computer services company, citing the stock’s brisk rise in the last three months--but not predicting an earnings bomb.
Computer Sciences (ticker symbol: CSC) dropped $6.50 to $86.13 in New York Stock Exchange trading.
Analyst Thomas Rooney lowered his rating to a “market perform” from a “buy,” noting the more-than-50% increase in Computer Sciences’ shares since early October. The stock rocketed at a time when many other computer services companies fell on concerns that customers were scaling back purchases until after the year 2000 transition.
Now, he warned, it could be due to cool down.
“All Y2K lock-down fears have been priced out of the stock, and it is now fully valued,” Rooney said in his report.
Rooney raised his rating on Computer Sciences in October, setting a three-month price target of $70 a share.
Wednesday’s cut doesn’t change his generally positive view of the company’s operations, he stressed. Computer Sciences “continues to announce significant contract wins and has an improving pipeline in federal and commercial sectors,” he said.
The company has signed a record $16 billion in new business in the last year. Computer Sciences’ base of long-term contracts reduces its exposure to more competitive markets such as electronic commerce, he said.
The shares reached a record of $94.63 on Dec. 31, a 47% gain for 1999. By comparison, Electronic Data Systems Corp. (EDS), its next-biggest rival, rose 33% last year.
Meanwhile Wednesday, shares of at least three other Southern California companies moved in the other direction as equity analysts upgraded their opinions:
* Santa Monica-based Stamps.com Inc. (STMP) rose $4.19, or 10%, to $45.44 on Nasdaq. The Internet-postage company was raised to “trading buy” from “market outperform” by Rakesh Sood at Goldman, Sachs & Co., who said he expects the stock to reach $75 within a year.
* Global Crossing Ltd. (GBLX), which has executive offices in Los Angeles but is incorporated in Bermuda, rose $1.25, or 3%, to $48 on Nasdaq. The builder of fiber-optic networks was rated “buy” in new coverage by Daniel Reingold at Credit Suisse First Boston Inc.
* And Santa Barbara-based Plastic Surgery Co. (PSU) rose 38 cents to $6.50 on the Amex after being rated “buy” in new coverage by Georgia Kounadis at H.C. Wainwright, with a price target of $12. Plastic Surgery has been an ugly performer: The stock went public Dec. 10 at $8 a share and quickly got nipped.
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Power Surge for Utilities
Electric and gas utility shares rose sharply Wednesday, building on Tuesdays rebound, as some investors sought safety in the jittery market. The Dow Jones utility stock index jumped 3.8% Wednesday to 289.11 after gaining 0.7% on Tuesday. But the index remains 13% below its all-time high of 333.45 set last summer. Utility stocks have slumped as market interest rates have risen over the last year, making bonds more competitive with utilities dividend yields. A look at some major utility issues, including current annualized dividend yields:
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52-week Wednesday Div. Stock (ticker symbol) high low close change yield Amer. Elec. Power (AEP) $48.19 $30.56 $33.00 +$1.19 7.3% Consolidated Edison (ED) 53.44 33.56 35.75 +1.56 6.0 Duke Energy (DUK) 65.31 46.75 51.00 +2.00 4.3 Edison Intl. (EIX) 29.63 21.63 26.94 +1.63 4.0 Pacific Gas & Elec. (PCG) 34.00 19.69 22.06 +1.38 5.4 Peco Energy (PE) 50.50 30.75 35.25 +1.63 2.8 Public Service Ent. (PEG) 42.63 32.00 35.19 +0.88 6.1 Reliant Energy (REI) 32.50 22.13 23.44 +0.94 6.4 Southern Co. (SO) 29.63 22.06 24.19 +1.19 5.5 Texas Utilities (TXU) 47.19 32.75 36.06 +1.44 6.7 Unicom (UCM) 42.81 30.94 33.75 +1.31 4.7 Williams Cos. (WMB) 53.75 28.00 32.19 +1.88 1.9
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Sources: Reuters and Times research
